Earnings Mobility in Hong Kong

Abstract:

The objective of the Special Topic Enquiry (STE) on Earnings Mobility is to study earnings mobility and intergenerational earnings mobility in Hong Kong. For this purpose, special questions were added to Hong Kong's General Household Surveys. Part One of the enquiry focuses on earnings mobility. Part Two of the enquiry focuses on intergenerational earnings mobility.

Although both Part One and Part Two are based on recalled data, comparisons of data from the Special Topic Enquiry and past General Household Surveys did not reveal any significant discrepancies between respondents' memories and contemporaneously-collected data from the relevant past years. However, some minor discrepancies were found. In Part One, respondents tended to over-report characteristics of jobs held ten years ago, but this was not a severe problem because the main focus of the analysis is employment earnings. In Part Two, too many parents were reported as being in "other" industries or occupations. Hence, these responses were treated as "unknown," or missing responses.

In Part One, it was found that earnings mobility in Hong Kong has declined since 2006. This is a continuation of a long-term trend that has been observed since the first earnings mobility study in 2001. When the earnings distribution is examined more closely, however, there have been positive changes at the lower end (i.e., a higher chance of upward mobility for those with low income), balanced by negative changes at the higher end. Since many highly compensated positions are in the financial sector, some of these negative changes can be attributed to the global financial crisis.

In Part Two, it was found that intergenerational earnings mobility in Hong Kong continues to be within the range commonly observed in OECD countries. More specifically, mobility in Hong Kong is higher than mobility in the United Kingdom, but lower than that in western European countries. Although one's family background has a strong influence on one's career prospects, it is not destiny; those born to families in the lowest two earnings quintiles are more likely than not to earn more than their parents. By contrast, those born to families in the highest two earnings quintiles are more likely than not to earn less than their parents. Further, where career selection is concerned, fathers are important role models for sons and mothers are important role models for daughters.

Finally, from a policy perspective, education continues to be a very important vehicle for social mobility in Hong Kong. At young ages (ages 30 to 39), education is a major determinant of upward earnings mobility, and it is a key defense against downward earnings mobility at any age. From an intergenerational perspective, education is especially useful where it can be a gateway to associate professional occupations. These occupations are important because, though they are a significant step up for underprivileged families, the entry barriers are not as high as those for professional and managerial occupations. In addition, due to the fact that daughters are much more influenced by their mother's career path than their father's, there is a key role for equal opportunity policies.

The studies on earnings mobility and the minimum wage have helped to inform public debate on these two important topics and contributed to government policy.